"For all of us this is our biggest test for a long while, which is great," Waugh told a news conference.
"I know the guys are looking forward to it. We've said often in the last couple of years we need a challenge to get us going to play our best cricket and we won't get a better challenge than right now."
India's shock four-wicket win in last week's second Test in Adelaide placed Australia in danger of their losing their first series at home in more than a decade, and it was India's first Test victory in Australia for 22 years.
"I think there will be more pressure on India now. They are in front, they probably didn't expect to be," Waugh said.
"Their record wasn't good away from home and now they've got an opportunity to win a series."
"People in India will expect them to win from here. I'd like to think it's the other way around, that there is more pressure on them now."
"They are a different side than they have
"We can relax and go out there and play our brand of cricket. I know if we take our catches we'll win the match."
BATTING FEAST
A Melbourne Cricket Ground crowd of about 70,000 will feast on the batting talents of India's century-makers in this series, captain Sourav Ganguly, Vangipurappu Laxman and Rahul Dravid, and the game's fourth-leading runscorer Sachin Tendulkar.
Australia boast three of the 10 top-ranked batsmen in the game, world record holder Matthew Hayden, vice-captain Ricky Ponting who made 242 in the first innings of the Adelaide Test, and fast-scoring wicketkeeper Adam Gilchrist.
"If you look at the records of both these sides, they are probably two of the best batting sides to have come up against each other in the history of Test cricket," Waugh said.
Waugh added he felt Tendulkar's next big score was not far away after the Indian failed to reach a half-century in the first two Tests.
"You have to expect a guy like that (Tendulkar) to get runs at some stage. Hopefully he can wait another two Test matches," Waugh said.